Yahoo Focused on User Engagement, Eyes 10% Sales Growth

Yahoo CEO Carol Bartz May 26 at the company's analyst day pledged allegiance to improving user engagement. Yahoo CFO Tim Morse said Yahoo expects annual sales to increase by an average of 7 percent to 10 percent. Yahoo also partnered with Zynga after buying Associated Content and Foursquare copycat Koprol. Some analysts see these moves as positive attempts to gain more users; others see them as an admittance that the company would rather integrate others' technology than build exciting new products.

Yahoo CEO Carol Bartz pledged the company's
allegiance to improving user engagement and expressed confidence in reaching as
much as 10 percent revenue growth over the next few years.
Yahoo CFO Tim Morse said at the company's analyst day May 26 that Yahoo
expects annual sales to increase by an average of 7 percent to 10 percent and operating margins
of 18 percent to 24 percent by 2013.

Bartz and other executives said Yahoo's ability to
deliver personalized content and applications experience will create better
engagement for the users over time.

Yet Yahoo's management admitted it was
challenged in keeping users engaged on its sweeping Website of news, sports,
and other consumer content. Few new users are coming to Yahoo.
The Wall Street Journal
cited comScore figures that unique U.S. visitors to Yahoo rose only 4 percent
from April 2009 to April 2010, compared to 10 percent growth for the Internet
overall. Total minutes spent on Yahoo fell 11 percent and page views dropped
13 percent.
The company, which accrued 600 million users over the
last 15 or so years because of its quality content and brand, has taken several
steps to address this engagement issue.
Yahoo May 18 acquired Associated Content to grab articles, audio and video clips from
freelancers all over the U.S. Yahoo May 25 purchased location-based social service Koprol, the Foursquare-like check-in
service from Indonesia.
In perhaps its greatest overture toward boosting user
engagement, Yahoo said at its analysts' day that it struck a deal with online
game maker Zynga. Zynga shot to fame on Facebook, with millions of users playing
its games, including Farmville and Mafia Wars.
Yahoo, which already integrates Facebook content and
Twitter tweets, is bringing those games to its users through its homepage,
Yahoo Games, Yahoo Mail, Yahoo Messenger and other properties in an effort to
entice more users.
Some analysts see these moves as positive attempts to gain more
users; others see them as an admittance that the company would rather integrate
others' technology than build exciting new products.
The greatest example of
this is Yahoo's outsourcing of its search engine to Microsoft's Bing,
which could make Yahoo a lot of money because Microsoft is paying its
partner 88 percent of the traffic acquisition costs.
Count Susquehanna Financial Group analyst Marianne Wolk
among the faithful. Wolk said Yahoo's analyst day was a positive surprise given
the low expectations heading into the event.
She said the 7 to 10 percent net revenue growth over the
next four years was a nice boost, assuming the company can execute to hit those
figures.
She also said the deal with Zynga and the launch of log-in page
takeovers in June should boost display revenue by the second half of 2010 and "support
a long-term display forecast above 13 percent through 2013.
"Yahoo expects to monetize its log-in page for the
first time as of June," Wolk wrote in a research note May 27.
"If it
achieves Facebook's recent rates near $300,000 per day, this suggests at least
$110 million in incremental revenue potential from the full page, graphical ads
reaching one in ten U.S. internet users every day (one in three every month).
If it matches the $1 million rates it achieves on the Yahoo home page, a more
sizable $300 million $400 million opportunity is possible."
Other analyst sounded more somber notes regarding Yahoo.
"The sole investment issue, in our opinion, remains
user engagement, where, outside of a few individual data points, the trends are
increasingly negative," wrote FBR Capital Markets analysts May 27.
"Until
we see signs that the company's efforts are reversing this trend, we believe
the stock will likely continue to underperform."